But strip of retail stores could hike property values, add more employees

The City Council has signed off on a multi-page independent analysis of the impacts of building a 148,000-square-foot Costco membership store on Johnson Drive versus allowing a strip of smaller stores up to 50,000 square feet as proposed in a voter initiative that will be on the Nov. 8 election ballot.

The report, prepared and reviewed during a public hearing Tuesday night by representatives of ESA Associates and ALH Urban & Regional Economics, firms that specialize in land-use and zoning impacts, shows minimal differences in potential impacts of proposed usages of the 40 acres on Johnson Drive that are under consideration by the city for a zoning change that would allow big box stores such as Costco.

A coalition called Citizens for Planned Growth obtained a sufficient number of signatures from registered voters in Pleasanton to place the initiative on the ballot that would restrict retail uses along Johnson Drive to footprints of less than 50,000 square feet.

The action was in response to the city's Economic Development Zone Program adopted in 2014 that would rezone 12 parcels within the 40 acres to accommodate large retail uses and hotels to increase the economic opportunities of the street. At least two hotels have expressed an interest in building there, and Costco has signed a letter of intent to buy property once occupied by a Clorox research center (now torn down) if the land is rezoned.

The ESA/ALH study shows that although the initiative proposal would generate fewer vehicle trips to the Johnson Drive area, it would result in the same significant and unavoidable near-term transportation impacts that would result from the zone program. In addition, funding of the traffic improvements would likely be more difficult due to smaller retailers who would open businesses at the site.

The initiative project would capture more market demand locally compared to a Costco store, which would have a greater regional appeal. The study shows, therefore, that the initiative project would result in substantially more impacts on local retail businesses in Pleasanton, contrary to what critics of a Costco store have been saying.

According to the study, the restricted 50,000-square-foot zoning rule would divert $5.7 million of sales from local businesses each year after the area would be built out in 2028, compared to $1.2 million of sales impacts if Costco built there.

The fiscal impact of the initiative project would be just as severe. Although it could lead to higher property values for the individual 50,000-square-foot parcels and possibly higher employment because of the number of separate retailers, Pleasanton could see reduced taxable sales than it would have from Costco sales.

The overall result, according to the study, is that the fiscal benefits with the initiative project in place would be lower than with a big-box store. The net fiscal gain for the city would be $1.9-$2.1 million a year at build-out, compared to $2.3-$2.5 million from a Costco or other big-box store.

Although interest in rezoning the Johnson Drive site has brought hundreds to Planning Commission and City Council meetings in recent months, only a few attended Tuesday's meeting, with only four addressing the council.

Three, including Costco-opposition leader Bill Wheeler whose Black Tie Transportation business is on Johnson Drive, described the ESA/ALH report as "interesting." Another said the study "has it wrong, traditional retailers can't compete" with Costco.

The full study is available on the city's website at http://www.cityofpleasantonca.gov.

Comments

17 people like this

Posted by Bob A.
a resident of Another Pleasanton neighborhood
on Aug 19, 2016 at 8:19 amBob A. is a registered user.

Hey PW, you missed the point! Your headline should read: Pleasanton City Leaders want to spend over $11 Million of tax payer dollars to bring Costco to Johnson Drive.

The City Council and City Staff paraded three highly paid consultants (paid for by developer, Nearon Enterprises) up to the podium to present the results of an analysis designed to prove that having a development with a “Big Box” Costco on Johnson Drive is better for the City than a development with multiple “Smaller Box” retailers. The question that they didn’t answer, what they didn’t explain, what they and your editorial ignored is, “Why should Pleasanton tax payers pay over $11 Million to subsidize this development?

The City Manager said that the City’s current plan to fund the $16 Million necessary for traffic improvements is for the developer to pay one third ($5 million) and the City to pay two-thirds. One-third ($5 million) from impact fees collected from this and other projects and one-third ($6 million) borrowed from Costco or from a $270 Million reserve fund that the city has. In either case, the loan plus interest would be paid back from the sales tax revenues generated from the development, likely over a 30 year period. We don’t know a lot of the details like the actual cost of the loan or if other incentives will be involved because, “no formal application has been made.”

Set the Costco debate and the flawed analysis aside for a moment. We are not dealing with an Agent Orange Super Fund site here. This is a prime retail site. Highly visible from two major freeways. Pleasanton has high average incomes and is one of the most desirable markets in Northern California. Given the opportunity, national, regional and local retailers will want to be here. The developer and who ever ends up on this property will make millions. Given all of this, they should pay for the traffic improvements, not tax payers. Other cities require developers to pay for infrastructure improvements all the time. Why can’t Pleasanton do it?

Now let’s look at the flawed analysis. Through consultants, (paid for by developer, Nearon Enterprises), the City says that putting a Costco “Big Box” on Johnson Drive would be more beneficial than a mix of quality retailers in buildings less than 50,000 sq. ft. as required by the Initiative the Pleasanton Voters will decide on, on November 8th. They say that it would be easier to fund traffic improvements, net sales tax revenues to the city will be higher and there will be less impact on existing local businesses with Costco there. Let’s look at each of these.

Ease of funding traffic improvements: The consultants also said that the Costco Scenario would be more feasible for the city because having one big tenant would make it easier to fund the necessary traffic improvements. This doesn’t really add up. Since, according to the City Manager, the city will be putting up two-thirds of the funding and the other third will come from the developer (see discussion on Financing below). Does it really matter to the city if there is one or multiple tenants? Sales tax revenues are sales tax revenues no matter who pays them. Multiple retail tenants versus one big one should generate more rent income for the developer, giving them more capacity to pay their third of the improvement costs.

Net sales tax revenues and impact on existing local businesses are closely connected: The more business Costco takes from existing Pleasanton businesses; the less incremental or new tax revenue the city receives. The analysis underestimates the impact Costco will have on Pleasanton businesses and therefore over states the amount of incremental sales tax revenues. Costco relies heavily on membership fees for their profitability. They leverage purchasing power and aggressive pricing strategies to maximize membership. Traditional retailers can’t hard to compete and lose sales as Costco sells many products at or below those retailer’s cost for similar products. Although logic and economic theory would suggest that the closer a traditional retailer selling competing products is to a Costco store, the more sales they would lose, the analysis significantly dilutes this impact by spreading the lost sales over the whole market area. The market area for the Johnson Drive development was defined as Pleasanton plus Dublin and some unincorporated areas.

The consultants said that Costco draws from a broader area than other retailers so less of their sales would come from existing local businesses. While Costco may draw from a wider area, the analysis doesn’t take into consideration the large number of people that current commute to work and shop at existing Pleasanton businesses each day. A significant number of these purchases will also move to Costco and the other retailers in the development and must be accounted for in net sales revenue estimates.

In the end, both options should generate about the same amount of revenue for the City. Due to a more even playing field, the initiative should have less impact on existing business. The initiative has less traffic, less pollution and creates more jobs. Ultimately, I say vote for the initiative to send City Leaders the message that $11 Million Pleasanton tax dollars should not be used to subsidize this development.

Posted by Val
a resident of Val Vista
on Aug 19, 2016 at 8:37 amVal is a registered user.

Well the "independent" report was biased, and the Pleasanton Weekly seems biased too. Only a few attended because the study was given to a few people on Thiursday, and the Council met on Tuesday.

Many of those few who did know, did not attend to hear another biased report ordered by the City, funded by the developer for Costco.

The Citizens for Planned Growth had a consultant who commented on the biased study in a 3 minute speech. One partial reference of his was analysis is quoted by the PW.

A reduction of 2500 cars on weekdays and 3600 on Saturdays WITH THE INITIATIVE IS NOT MENTIONED in the PW article.
Less pollution WITH THE INITIATIVE IS NOT MENTIONED in the PW article. More jobs WITH THE INITIATIVE IS NOT MENTIONED in the PW article. No borrowing WITH THE IHITIATIVE IS NOT MENTIONED in the PW article.